Downside of Rising Values: Housing Affordability Falls to 4-Year Low

Downside of Rising Values: Housing Affordability Falls to 4-Year LowRising mortgage rates and surging home prices signal an improving economy, but they also serve as a double hit to housing affordability, which has fallen to a four-year low, according to home builders.
Affordability took a dive in the second quarter as recovering housing markets saw significant firming of home prices in April, May and June, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released Tuesday.
Overall, 69.3 percent of new and existing homes sold in the second quarter were affordable to families earning the U.S. median income of $64,400.
This is down from the 73.7 percent of homes sold that were affordable to median-income earners in the first quarter, and the first time that the measure has fallen below 70 percent since late 2008.
“Now that markets across the country are recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, develop-able lots and labor,” said NAHB Chairman Rick Judson, a home builder from Charlotte, N.C.
Housing affordability had been hovering near historic highs for the past several years, largely from record low mortgage rates and low prices during the recession.
The median price of all new and existing U.S. homes sold in this year’s second quarter was at $202,000, well ahead of the second quarter 2012 median price of $185,000.
“Together with rising mortgage rates, this contributed to affordability slipping to the lowest level in more than four years,” said NAHB Chief Economist David Crowe.
Crowe said these factors would be “less concerning were it not for ongoing discussions regarding potential changes to the mortgage interest deduction and federal support for the secondary mortgage market, both of which play enormous roles in keeping homeownership affordable.”
President Obama and lawmakers from both parties support winding down government-supported Fannie Mae and Freddie Mae, which own or back a majority of U.S. mortgages.
For a third consecutive quarter, “San Francisco-San Mateo-Redwood City, Calif.” held the lowest spot among major markets on the affordability chart. There, just 19.3 percent of homes sold in the second quarter were affordable to families earning the area’s median income of $101,200.
Other major metros at the bottom of the affordability chart included Los Angeles-Long Beach-Glendale, Calif.; Santa Ana-Anaheim-Irvine, Calif.; New York-White Plains-Wayne, N.Y.-N.J.; and San Jose-Sunnyvale-Santa Clara, Calif.; in descending order.
Ogden-Clearfield, Utah was rated the nation’s most affordable major housing market for a fourth consecutive quarter. A newcomer – Utica-Rome, N.Y. – claimed the title of most affordable smaller market in the latest index for the second quarter.

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